Future of Money Interview. Part I. On Credibles and owning digital currencies issued by brands you love.

HS: Would you mind giving us a quick introduction about yourself, your background and what you’ve been working on?

GL: My name is Guillaume, I’m French, I’ve been in San Francisco since 98. I’ve worked in fintech since 2002. I started a company called Brixlogic which was doing financial middleware for banks and insurance companies, and that company was bought by Diebold in 2007. I’ve worked for Diebold which is a leading self-service banking solution provider for several years and then I decided to quit my job and focus my career on digital currency. So my first project was a local community currency in San Francisco in the neighborhood of where my business partner and live. Bernal Bucks is a pretty successful community currency in the sense that it is still running and people are pretty addicted to it. It was very unique because it was attached to a debit card issued by a local credit union so it’s a community currency in the form of a rewards program attached to a debit card. That was pretty unique in 2011.

GL: Since about a year and half ago, I’ve been focusing on Credibles which is in a way taking Bernal Bucks to the next level. I think community currencies are interesting but I wanted to do something that had a bigger potential in terms of adoption, not limited to a particular community and also not necessarily attached to a debit card or to the existing banking infrastructure. So, we took what we have learnt from Bernal Bucks and we turned it into a community currency if you want but for food, and in this case, with Credibles, it’s not attached to a debit card, it’s a self-standing program and it’s more about crowdfunding food businesses and rewarding people for doing that. So there is some element of traditional banking money, but more than that it does not have a strong regional focus. We are in several states, at this point we have about 100 businesses who use the platform. We have businesses that have raised anywhere from $10K to $100K, which they use as working capital to fund different things like an electric generator or some improvements. So what’s really unique is combining the notion of crowdfunding or community funding with a currency, and of course our focus on food, which we thought was a very useful focus because it is something that people really care about that they do everyday, so it’s a good use case for a currency. And just recently we announced a partnership with Whole Foods Northern California. They’re of course very interested in food and they actually have a local loans program so they do a lot already for their local producers to try to provide them financial aid in the range of $25-50K loans, and they are looking at Credibles basically as a way to extend that program to their customers, and allow their customers to also fund their favorite food makers.

HS: So, last time I visited up in the Bay Area, we met at a Whole Foods and you walked me through going in there, buying some stuff using Credibles. Can you describe the typical example of what you walked me through?

GL: Let’s take the example of a creamery that we’ve been working with. They do really good yogurt, it’s a small creamery called Saint Benoit based in Petaluma. They use special kind of cows that produce this very unique yogurt. They sell through Whole Foods and through many other retailers, they also sell direct at Farmers Markets. So they started using Credibles for customers going through Farmers Markets. The way it works is that someone who buys their products all the time is given an offer which is: pay us in advance, get 5%, 10%, 20% more. So basically you convert your US bank money into Credibles which you can redeem at that particular business. And so you have a little mobile app to track your account and reload, and gifts, all the typical activities you do with a prepaid account. And then the business also has an app, similar to a Square for Credibles, that they use at the Farmers Market to redeem your credits. So that was the initial model and of course some customers were saying: well I love their products but I go to the Farmers Markets but I also go to Whole Foods and other retailers so it’d be great if I could use my Credibles there. So that’s one of the businesses that helped us start the relationship with Whole Foods. So at Whole Foods the experience is like a self-checkout experience, you need to have the app to redeem your credits. So you go in the aisle, pick the product you want that you’ve already prepaid and then when you’re at checkout the app generates a code that you have the cashier scan and that basically takes the product out of your receipt. At that point you effectively get it for free because you already paid for it. And after that obviously your balance has been updated. So, essentially you get the benefit of buying in bulk but redeeming and buying the products over time. So obviously you wouldn’t be able to buy 10 jars of milk and keep them at home, but some people who buy these products all the time, the idea is why don’t I put my money upfront, get 10% more and at the same time, I’m helping the business, and I love their products so why not?

HS: I thought it was so interesting, when we walked into the Whole Foods, that you went to the yogurt cooler counter and you pick up this neat looking product, you scan it, and you still have to checkout but you didn’t pay money to Whole Foods. The traditional grocery interaction is: you pick up something from the shelf, bring it to the cashier, they ring it up and you give the money and you get the thing. But here you went to the shelf, you said you were going to redeem something you had already prepaid for, it generates this code, and when you got out of the store at checkout you said you had already paid for this, and the store scanned it so they can track their own inventory of products.

GL: Yes, it’s one step away from what the ultimate experience would be which is you pick up the product, you self-checkout on your phone and you leave the store. Like many things in mobile payments, it’s really easy to come up with amazing experiences, it’s much harder to come up with an actual business case and roll-out strategy. A lot of grocery stores would be worried about the ROI of self-checkout and the suppliers may say who’s going to pay for it, etc. so what I think is interesting in our model is that it’s a very incremental solution that has a very clear model for the vendors. they get some money upfront, and for WF they get the benefit of extending their loan program to their customers, to secure some sales from their customers. So there is a real case. The integration is very simple. This gives us the opportunity to show that people are interested in that, and later on it could be expanded.

HS: Yes, it made me realize that you’re going in to pick up this product that you’ve already prepaid. You have such a good relationship with it that you’ve prepaid it. If there are other little things that you need to pick up at the store at the same time, it’s very convenient to go to Whole Foods. The checkout experience when you are checking out and you are buying things in the traditional way and the way that you do with Credibles is still very easy. They ring your stuff up, they you got the code that you show, which comes as credit on your receipt, you get to only pay for the items that you haven’t prepaid, so I think you have a really elegant solution that helps people do the same normal type of experience that they are used to, but combine these two things like having this special relationship with a local producer, but also do their normal grocery shopping.

GL: Yes I think what’s really interesting is that today a good maker who sells at WF, basically what they know is how many units and how much money was made with their products, in each store. But they don’t know who bought. They don’t know what they bought. Even in an anonymous way. In the Credibles model, they get to know that, because the credits you have are credits with the food maker and what’s going on in terms of accounting if you want, is that you bought these credits from the food maker and then you go to whole foods, WF accepts these credits and then they redeem the credits back to the producer, so the relationship is really between you and the producer; Whole Foods is just the party accepting and facilitating the redemption. So I think this idea of store credits for a particular brand and having other parties accepting these credits is one trend I see. For instance, we’re not the only one to do this. Apple just launched in Japan a virtual prepaid card with iTunes credits. Someone was speculating that – if that is their mobile strategy, maybe not – most likely you’ll be able to use your iTunes credits at other businesses.

GL: We can also reasonably expect the Starbucks card to be accepted at other neighboring businesses, who may see value in accepting the card. That’s the premise: in the future, people will hold a part of their assets directly with some of the brands that they trust and they love and may not have all of their money in their bank account, some of their money in digital currencies, but also some of their money with brands they love. That’s a trend that we see.

HS: That’s really fascinating. I want to ask you a question about that. I have first a question about interoperability. The transferability of the credits. In the case of the creamery, say I prepaid $250 of yogurts. Is there a way that I can change it with another one with someone else on the network to get eggs or vegetable.

GL: That’s where this currency aspect comes into play. To me currency is not a thing, it’s a network. It’s people, entities, accepting accepting, exchanging, clearing things with each other. There are several ways to create liquidity in such a network. One way is you accept other people’s promises. The other way is people trade or swap with each other these promises. In away banks are ways to do that today. They are pools of liquidity that provide us – by commingling assets and liabilities together – some access to liquidity. And if they don’t have enough liquidity, they can always reach out to other banks to provide us liquidity i.e. access to various other places in the banking network. So, with Credibles we just started to provide this capability to pool credits with each other, to allow people to share with each other some credits. What that means is that you can join a group of people and businesses, and put some of the credits that maybe you don’t want to use anymore, and pull out some other credits from another business. And we do this on a sharing basis. What it means is that you put in 10 and you get 10. There is no arbitrage or trading or buy/sell order, etc. But the result is that it provides very good level of liquidity. So, Bernal Bucks was actually modeled around the same principle, which is that you have promises/IOUs from different businesses and then you put these IOUs into a pool, which we call Bernal Bucks, and that gives you a balance with the pool, and then when you want to redeem your credits, Bernal Bucks or Credibles, you pull out something that you want, typically from another business. So it is essentially user-generated liquidity. Just like we have user-generated content with social media, we can have user-generated liquidity with these new forms of financial media.

HS: I think it is so fascinating. Back to my question I was curious about. So, you’re talking about crowdfunding of local producers, and how we may hold some of our assets directly with some of these businesses. Today we do this with stocks and typically invest in the stock market for a financial return so it’s all about the money and the profit, not about the context or the way that the business does business. In this case, if I’m micro-loaning to the creamery, I’m doing that b/c I believe in the same values, I want the product, I want a local producer, I’m getting a deal, a discount. I’m just wondering: how do you see what that is – even with the starbucks card, you’re essentially giving a loan. How do you see it fitting with stocks?

GL: I think there’s going to be a number of things. You’re not going to invest your retirement on future eggs, or reputation currencies. Money at the core is a store of energy, it’s a way to get others to do stuff for you. You need that when you’re old. What I think is weird right now in the financial markets is not knowing what’s going on with you savings.

HS: Like say you have $20K in the bank, the bank is loaning to others, but you have no visibility into that, you have no rights to say: Oh I don’t want this money invested in this, this or this.

GL: Right, yeah. [technically they are not loaning your money out, but in principle you’re helping them making other loans] similarly when you buy stocks, that’s directly capital and energy towards that company. And if you are only seeking returns in money, and if you don’t care how the company is generating that profit, I think there is something missing there that leaves a lot of people wondering sometimes. What’s in my IRA? What’s in my mutual fund? which company I’m supporting? which causes I’m indirectly supporting? so I think there is a general demand for at least a new class of asset that will give you more transparency into how your saved money is used and holding some credits that can be redeemed for goods/services, that’s one of them. But you could have different things. There is no reason in principle that you could not redeem a stock in goods/services as well. You could have forms of equity that pay dividends in money but only pay dividends in goods/services, but still carry a speculative [equity] aspect. So, recently there’s been some more talks about crypto equity. A crypto currency is like a stock, a piece of equity over a community of people. That’s how I see Bitcoin. It’s equity mostly. So, if you’re a company, technically you could raise a lot of money a lot of energy to do what you need to do, and use that instrument as also a way to redeem for goods/services. So right now, we’ve [Credibles] chosen a very simple instrument that people are very familiar with – because prepaid is very simple, it’s very well understood, regulated, etc. Crypto-equity or equity redeemable for goods/services, that is much more complicated. I think as we move a lot of these assets on public block chains, I think we’re going to see tremendous innovation on how you buy these products, and how they are structured and what payouts they give, and they may not only be payouts in money, they may be payouts in other things. I could see for instance a loan whose principal is paid back in money, but whose interest is paid in goods & services, or the reverse.

HS: That’s a really interesting idea. I was thinking about that, where the loan is paid back in money and the interest is paid back in goods & services because basically what you’re allowing is that the person making the loan is also getting some of the results of what has been capitalized, whether it is the product that’s been built. – you need enough money to do certain things with it but once you get it going and you’re growing, do you want to continue to make more money or, I mean you’re probably went into the business to make the thing that you’re making rather than to make the money to use for other things. I know that a lot of artisanal producers are doing the work because they love doing the work, not because they want to become a millionaire.

GL: My view is that we could imagine a world where there is a lot of these crypto equity and that becomes one of the main ways that we invest and pay each other and buy stuff. I also think that the kinds of innovation that we see: derivatives, pools, are also going to be used. Of course when people think about these derivatives, they thing Oh my god, this is what led to the financial crisis, but really what I think led us to the financial crisis is the lack of transparency on these instruments. I’m not an investment banker but I think a lot of the collateralized debt obligations and things like that where basically a pile of papers or spreadsheet and proprietary software, plus lots of contracts, so of course when some unanticipated event happened it was hard to reprice.

GL: Now that we are moving to public ledgers with a lot of transparency, I don’t think it matters as much how complex some of the smart contracts built on top could be. So the pool that I was describing earlier, that we’re using, is a smart contract: it’s basically a bunch of people saying we agree to put our credits together and then when we need what we want, we can take out of the pool whatever is in the pool. And this is a smart contract, it’s an agreement between people. It’s not a problem to do that as long as there’s a lot of transparency and as long as all the cases where things could go wrong are taken care of and well programmed if you want. So I think there is going to be tremendous innovation on top of the block chain we see today using smart contracts.